TAG Oil Blog

There hasn’t been much blog news from the field lately, sometimes geology and science can be quiet, solitary stuff. But we’re pleased to report that as of October 2014 TAG achieved record monthly production of 1,990 BOE (76% oil) per day.

And now with the Nova-1 drill rig back in Taranaki we’ve resumed the next wave of development, appraisal, step-out drilling, and field optimization work in our Taranaki oil and gas fields.

We’re kicking off this portion of TAG Oil’s Taranaki drilling campaign with the Cheal-E-JV-6 and the Cheal-E7 wells, acreage that we believe is prospective for high productivity wells. The strong production performance of Cheal-E1, Cheal-E4, and Cheal-E5 makes further development of the Cheal-E site particularly compelling.

When finished, the Nova-1 drill rig will move to our Sidewinder oil and gas field to target the oil potential identified from oil shows encountered in TAG’s six Sidewinder gas wells. This acreage borders the Ngatoro/ Kaimiro field, which has been producing for 31 years, and still has millions of BOE’s of recoverable reserves remaining.

Cardiff-3 Deep Uphole Completion Update

After further technical analysis of Cardiff-3’s lower K3E zone (which returned gas and condensate but at uneconomic rates), TAG is now in the planning stages to production test the primary uphole zones, the McKee and K1A Formations. These are both producing formations in large fields along trend to the Cardiff prospect.

TAG Oil CEO Garth Johnson and COO Drew Cadenhead took to the phone lines last week to discuss recent drilling announcements and the new fiscal year’s operational plans. Typically forthright, forthcoming and realistic, they outlined the Company’s plans and answered participant questions.

TAG’s vision remains in focus, to:

Grow baseline reserves, production, and cash flow in Taranaki

Build a steady stream of long-term predictable cash flow from production

Continue to pursue high-impact Taranaki exploration in deep Kapuni and the offshore Kaheru

Unlock the vast potential of unconventional East Coast basin assets

Focus on maintaining balance sheet strength.

Said CEO Johnson: “Our approach to our business plan has always been to start off with an understanding of what we can afford to do. We high-grade our prospects that we have in inventory. We analyze our commitments to maintain permits in good standing. And we agree what the acceptable risks are versus the potential returns with each drill prospect, and then we execute our plan.

We always consider the amount of value that can be created by a variety of potential programs as part of our process. So we ensure we choose the right program that provides an opportunity for large-scale success without putting the Company at risk financially….

Can we guarantee success? No. But we set our sights high. We work hard. We study our data. We learn from our mistakes. We manage the risks and we stick to our business plan, which gives us the best shot at success.”

Specific details of the CapEx program

TAG has defined a $60 million CapEx program for the fiscal year, fully funded through forecasted cash flow and working capital on-hand. The investments break down as follows:

$5 million slated for offshore Taranaki in preparation to drill the Kaheru prospect (40% interest)

$3 million for an uphole completion at Cardiff-3, once the data has been studied

$1 million to drill a well in the frontier Canterbury basin, where oil and gas seeps onshore and discoveries offshore have confirmed the hydrocarbon system is working

$20 million to drill and test East Coast unconventional wells:

- Drill the new Waitangi Valley-1 well

- Drill the new Boar Hill-1 well

- Test the Ngapaeruru 1 well at the same time

On recent challenges

Sidewinder Miocene gas BOEs declined rapidly early on, but are now steady at 150 BOEs a day.

While Cardiff’s deepest K3E zone wasn’t immediately successful, the data confirms the zone is filled with hydrocarbons: gas, oil and condensate. We just have to figure out how best to unlock it.

Meanwhile, the upper two, previously proven zones, are our next target, as soon as we have a rig free.

The only economical rig in New Zealand is the Nova 1 rig, which is booked for two Cheal-B wells starting next week, then one East Coast deep well at Waitangi Valley. So we're looking at three to six months before that rig returns to Taranaki.

While the actual operational aspects of the completion and testing are quick, the pre-operational setup steps for fracking in New Zealand are long and involved, and also fairly new. These include specific consents both on regional district council consents, water consents, and much more.

Because we have to mobilize an entirely different set of equipment over to the east coast to test wells, we made a strategic / economic decision to delay further testing of the Ngapaeruru well until we had two or three wells to test back to back, if warranted.

Looking ahead

While there are no guarantees in this business, we see every reason to continue setting our sights high. TAG Oil is excellent at reading its data, managing its risks, and sticking to its business plan. And operationally, we’re still looking ahead to another big surprise well like Cheal E1 or B5, cracking Cardiff, branching out into Kaheru offshore, and establishing a new oil and gas zone in the East Coast Basin, or maybe even the Canterbury Basin. We’re counting on our quality team, the data, excellent acreage, and sound fundamentals, but only time will tell for sure.

With all our recent financial news and Cardiff’s deep drilling updates, shallow oil and gas developments at Cheal and Sidewinder have gone under-reported lately. This post should bring you up to date!

Even as flow rates have stabilized, development and step out drilling are delivering excellent results. The Cheal-E1 step out well, which was placed on production last November, defined TAG’s newest producing oil site. The addition of Cheal E substantially extends the oil-saturated area of TAG’s Cheal field, and to date has produced about 90,000 bbls of oil. Current stabilized production is about 650 bbls/d of oil per day (455 bbls/d net), plus solution gas from three wells.

In the current 2015 fiscal year, TAG is slated to drill five more shallow development wells within the Cheal and Greater Cheal area. Four of these wells will be drilled with a 100% interest; one well drilled will be at a 70% interest in the new Cheal-E site acreage.

AtCheal South and Southern Cross, a 50-50 joint venture with East West Petroleum in a non-core operating area, TAG has already drilled four shallow exploration wells and one exploration side-track well. Three of them are being plugged and abandoned, while one, the Cheal-G1 well, is currently planned for production testing as a potential new discovery…we’ll keep you posted!

Over at Sidewinder, we have two exploration wells planned in the Sidewinder-B site, which target 3D seismically defined anomalies, which we interpret to be oil-prone prospects. Our exploration team has made the decision to focus this next round of wells on oil, based on the decline rates of Sidewinder’s gas wells. Again, we’ll let you know how things proceed. [Photo: Loading arm to fill Sidewider oil tanks.]

All of the seven wells mentioned here were identified from TAG’s proprietary 3D, and we consider five of them to be the lowest possible risk in our portfolio. So while we’re casting a bigger net to pull some higher-risk, higher-potential prospects into our drilling portfolio in FY 2015, our low-risk shallow drilling strategy to fund our other activities remains in place.

We put together a simple table to bring you up to speed on TAG’s Taranaki Basin oil and gas producing and drilling activity. The table includes producing oil and gas wells, wells in development (some awaiting workover operations as well as improvements in production infrastructure, to bring additional production that’s currently sitting behind pipe, on-stream), and our next condensate targets to be drilled. Status will change quickly, but here’s a snapshot of how TAG Oil's drilling and workover program stands now.

Taranaki Shallow Drilling and Workover Program

Cheal A

A1

Behind pipe awaiting infrastructure expansion

A2

Waterflood workover

A3X

Producing

A4

Waterflood workover

A7

Behind pipe awaiting workover

A8

Behind pipe awaiting infrastructure expansion,

A9

Drilled, awaiting test

A10

Drilled, awaiting test

A11

To be drilled

A12

To be drilled

Cheal B

BH1

Producing

B1

Behind pipe awaiting workover to initiate Urenui Production

B2

Behind pipe awaiting workover to initiate Urenui Production

B3

Producing

B4ST

Producing

B5

Flowing 800 to 1300 bbls/day

B6

Testing

B7

Flowing 800 to 1075 bbls/day

Cheal C

C1

Producing; oil being trucked to the Cheal Production Station

C2

Excellent flow test results, behind pipe awaiting workover

C3

To be drilled

C4

To be drilled

Sidewinder

SW1 - SW4

Producing 2 to 3 million cubic feet of gas per day (350–500 boe/day), and 30 to 50 barrels of light oil / day. Permanent tie-in completed. Anticipate 8 to 10 million cubic feet of gas per day once compression installed.

On a recent trip to Taranaki New Zealand, TAG Oil CEO Garth Johnson and Controller Dan Brown snapped some photos for the blog. They were down under for meetings with the technical team and local community leaders, and of course, to experience the new developments at TAG's Cheal and Sidewinder oil and gas discovery areas first-hand.

The Ensign Rig getting set up to drill Cheal -B7, TAG's follow-up to the highly successful B5 well. Cheal-B5 had the most extensive pay interval ever recorded by a Cheal well, and the highest flow rate recorded from from a Mt. Messenger well.

TAG Controller Dan Brown stands proudly in front of the Cheal-B5 wellhead. As announced December 5th, TAG perforated and flow tested 20 meters of continuous oil-and-gas pay in the Cheal-B5 well, in the 35 meters of net pay intercepted within the primary Mt. Messenger Formation. Today it’s still going strong.

Lead engineer Jack Doyle and CEO Garth Johnson, in front of the Cheal-C2 discovery well. This important step-out well in TAG's C-block discovery area flow tested ~14 million cubic feet per day (~2,333 BOE/day) on a 48/64" choke, with associated condensate production increasing during testing. Located about 3.5 km's NW of TAG's Cheal-B5 well, it significantly extends the known oil-and-gas saturation area within TAG’s Cheal permit. The success of Cheal-C2 also adds another high-impact target to TAG's prospect portfolio in the Mt. Messenger and Urenui formations.

A shot of the loading arm at the Sidewinder Facility: used to fill the oil tank in the background with oil produced from TAG’s successful Sidewinder exploration wells drilled in late 2011.

Piling and foundation work is well underway on the Sidewinder Production Facility. The separators, exchanger and coalescer are being built and tested in a shop in town, then we ship everything out to the site to weld it together. At the same time we’re building the 8” pipeline from the actual Sidewinder site about 3.3km’s away to tie into a major gas pipeline. When we attach the pipeline to the plant, we’ll be ready to produce.

We have a little more than 1700 m of our pipeline in the ground, and are on our way up the easy portion of the track to the Vector tie-in point.

The facility piling goes in, and in town, we run the gas coalescer hydrotest.

Another good looking test on Sidewinder 2. The 4-point Isochronal flow test achieved stabilized flow rates of 8.8 million cubic feet per day (~1467 BOE per day) with less than a 25% drawdown.

We encountered oil shows when we perforated the shallow Urenui Formation, but the interpreted pay zones are mainly from the Miocene-aged Mt. Messenger Formation. Drilled to 1,597 meters, we intersected the main Sidewinder discovery zone and four separate oil-and-gas charged zones of interest totaling 47 meters of net pay.

Though all four Sidewinder well flow tests have been excellent, this is the best so far.

We drilled Sidewinder-4 exploration well (the Sidewinder oil and gas discovery is in TAG's PEP 38748) to 1,410 meters, targeting a fault-bounded 3-D anomaly in the Mt. Messenger Formation. We drilled down-dip of Sidewinder-3 and encountered 19 meters of net oil-and-gas-charged sandstones, with no water column evident.

A 4-Point Isochronal test achieved stabilized flow rates of 6.98 million cubic feet per day (~1163 BOE per day) with a 25% drawdown. Another success for our tech team.

Though Mt. Messenger was our primary objective, we deepened it with a wildcat well to a total depth of 2382 meters to test the down-dip edge of a large closure within the deeper Moki Formation (~2200 m). We encountered strong oil and gas shows within a 73-meter thick, high-quality section of porous and permeable sandstone. We’ll drill any future wells directly targeting this Moki Formation structure in an updip position, which could intersect substantially more of the hydrocarbon-charged Moki sandstones.

The test is done and the news is good: We drilled the Sidewinder-3 well (about 1 km south of Sidewinder 1) to a total depth of 2,160 meters and encountered 15.4 meters of net gas-bearing sandstones. We’ve drilled four wells so far, and the interpreted total hydrocarbon column at Sidewinder exceeds 60 meters in thickness, with no water column evident in any of the wells.

A 4-Point Isochronal test achieved a stabilized flow rate of 7.2 million cubic feet per day (1200 BOE per day) with less than a 50% drawdown, consistent with the Sidewinder-1 well flow test (stabilized flow rates of 8.5 million cubic feet of gas plus 44 barrels of oil per day from 14m of net pay).

We calculate the absolute open flow rate of Sidewinder 1 to be 30 million cubic feet of gas per day or 5000 BOE per day; we’ll complete a similar analysis on Sidewinder-3 once the down hole gauges are retrieved in a couple weeks.